Finance minister Nirmala Sitharaman needs to perform a delicate balancing act while preparing Union Budget 2025-26. With economic growth slowing to 5.4% in the second quarter of FY25, this budget will need to address the pressing need to revive domestic consumption and accelerate investment while adhering to the government’s ambitious fiscal consolidation roadmap. Against a backdrop of persistent global uncertainties and domestic structural challenges, the government has the opportunity to outline a bold yet pragmatic fiscal vision that can stimulate economic activity, drive employment, and consolidate India’s reputation as one of the world’s fastest-growing economies.
Stimulating consumption is likely to be a priority for the government, especially given its critical role as a key driver of the Indian economy. Weak consumption and low capital formation have contributed to the current slowdown. Addressing this, economists and industry leaders have suggested various measures. Tax reforms, particularly aimed at the middle class, are expected to be in the spotlight. The government is reportedly considering tax breaks for individuals earning up to Rs 15 lakh per annum. Such measures could significantly increase disposable income, thus boosting demand and consumption levels.
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Additionally, the Budget may continue the momentum of employment-linked incentives introduced earlier. Programmes like internship schemes and employment subsidies could see an expansion. These initiatives look to tackle unemployment while harnessing the demographic dividend. Furthermore, the micro, small, and medium enterprises sector and export-oriented industrial clusters with high labour intensity are expected to receive targeted incentives. These sectors not only hold the potential for substantial employment generation but also play a pivotal role in fostering economic recovery.
Strengthening public investment
Public investment, especially in infrastructure, will likely remain a cornerstone of the government’s growth strategy. In the previous Budget, effective capital expenditure was allocated Rs 15.02 lakh crore, reflecting the government’s commitment to bolstering long-term growth. The upcoming Budget is expected to build on this foundation by accelerating infrastructure projects. Such investments not only stimulate private sector participation by creating a conducive investment environment but also generate employment opportunities, thereby supporting overall economic revival.
Improving the quality of public spending is another critical area of focus. By ensuring that resources are channelled efficiently and effectively, the government aims to maximise returns on investment while adhering to fiscal prudence. This approach is crucial for fostering sustainable growth and maintaining macroeconomic stability in the face of global uncertainties.
Fiscal consolidation amid spending needs
The government’s commitment to fiscal consolidation remains steadfast, with a target of reducing the fiscal deficit to below 4.5% of GDP by 2025-26. This balancing act requires prudent fiscal management, especially in the face of ambitious spending needs. Strengthening social security measures is expected to feature prominently in the Budget. Enhanced safety nets for the poor and vulnerable, including expanded welfare programs, align with the government’s broader objective of inclusive growth.
Efforts to rationalise subsidies and increase non-tax revenues could provide additional fiscal space without burdening taxpayers. By optimising resource mobilisation, the government aims to ensure fiscal sustainability while continuing to support critical sectors of the economy.
Budget 2025-26: Sector-specific reforms
The cryptocurrency sector is abuzz with expectations of significant reforms in Budget 2025-26. Stakeholders are hopeful for a reduction in the 30% tax on gains and the 1% TDS on transactions, which have been criticised for stifling domestic trading volumes. Allowing the offsetting of losses and aligning crypto taxation with other asset classes are among the industry’s key demands. Furthermore, establishing regulatory sandboxes for startups in blockchain and decentralised finance could foster innovation, generate employment, and position India as a global leader in digital assets.
In the steel sector, policies to curb rising imports and support domestic manufacturing are anticipated. Meanwhile, the telecommunications industry faces challenges such as competition from satellite communications. Addressing these issues could provide a much-needed boost to investment recovery and sectoral growth.
Women’s participation in the workforce remains a critical area of focus. The Budget is expected to include tax incentives for employers hiring women and targeted skill development programs. Such measures aim to bridge workforce gaps and drive inclusive economic growth.
Simplifying tax regime
Simplifying the tax regime has been a long-standing demand from industry bodies like FICCI. The Budget is likely to address this by streamlining compliance for both direct and indirect taxes. Measures to reduce litigation and ease procedural burdens could enhance the business environment, attract investment, and support economic growth. Personal tax reforms, particularly for individuals in the middle-income bracket, could further improve compliance and boost household spending.
Geopolitical uncertainties and global economic headwinds continue to shape the government’s economic strategy. Strengthening macroeconomic fundamentals, enhancing self-reliance, and boosting exports remain central to the government’s approach. While India has managed to maintain its status as one of the fastest-growing economies, risks to growth persist. The upcoming Budget presents an opportunity to fortify the domestic economy against external shocks while leveraging global opportunities.
The Union Budget 2025-26 presents a critical opportunity for the government to address economic headwinds and set the stage for sustainable and inclusive growth. By prioritising consumption, accelerating public investment, and addressing sector-specific challenges, the government can tackle immediate economic concerns while laying the groundwork for long-term prosperity. With a judicious mix of fiscal discipline and targeted interventions, India is well-positioned to maintain its growth trajectory and secure its place as a leading global economy.